World Air Cargo Symposium, Rome

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It is a pleasure to be here in Rome, my home and an important aviation market. And thanks to President Dini for his remarks that underline the importance of air cargo and the relevance of our industry’s role in the economy. The attendance in this room also speaks of the importance of this meeting. There are representatives from Government, customs and airlines, postal services, freight forwarders, suppliers and most important of all, the people who pay for the services we offer - the shippers.

We are a US$50 billion business that transports 35% of the value of goods traded internationally and a critical part of the airline business which, as a whole, is the US$490 billion heart of a value chain that supports 32 million jobs and US$3.5 trillion of economic activity. We are an important industry that is critical to global business.

State of the Industry

It’s clear that our industry must change. After US$40 billion in losses between 2001 and 2006, airlines turned a profit last year - US$5.6 billion. How did we get there? A 64% improvement in labour productivity, a 25% reduction in sales and marketing unit costs and a 16% improvement in non-fuel unit costs. But even after that enormous change the margin is less than 2% and challenges are getting even more difficult. On the cost side the industry fuel bill will rise to US$149 billion this year. And on the revenue side, the US economic slowdown is keeping growth slow - 4.3% last year and 4.5% in January. I will be frank: we have lost competitiveness. World trade grew 7.5% last year and our growth forecast for this year is 4.0%. Our sea competitors are gaining market share with faster ships, lower prices and innovative solutions. And new capacity coming into the market – 200 to 300 wide bodies entering the market each year to 2011 - will put even greater pressure on yields. There is some good news: Asia is half of our business and it is booming, particularly China and India. So there may be a buffer in regional business. But the hard message is that it’s a tough business that is getting tougher. There will be winners and losers and the only way to succeed is to please the customer. How? It is not rocket science – customers want better quality, lower prices, more speed and consistent delivery. But it is also not easy to achieve. Some difficult decisions will be needed to cut weaker parts of the business and invest in those that are strong.

IATA

IATA’s job is to improve our industry’s competitiveness. Last year we saved US$5 billion by cutting airport and ANSP charges and improving fuel efficiency. Simplifying the Business is delivering results. E-freight is a reality and we will be 100% ET in 89 days. And our US$310 billion settlement system is the industry’s financial backbone. CASS is an important part of the settlement system. In the last four years the CASS network grew 60%. It now covers 72 countries, handling almost half the business - US$21 billion with a collection rate of over 99.99%. In the last year alone we opened 14 new CASS operations thus delivering on a promise we made at our first Symposium in Mexico City last year. And in China we handled a 300% increase in volumes. We will be even more ambitious in 2008 by adding domestic operations in USA, China, and Brazil, import operations in Canada, Singapore and Australia and export operations in India, Chinese Taipei, Colombia, and Israel. And we will expand CASS to new areas, for example, billing and settlement between forwarders to generate even more efficiency in the system.

Voice of the Customer

IATA has a unique perspective on the industry, connecting the different players. In February we asked top shippers what their main issues were:

72% said we need to reduce costs

28% said we need to be more reliable

And 17% said we need to do better at reducing our carbon footprint

Shippers are not aware of some of the fixes we have in the pipeline

36% have no idea about e-freight

47% do not understand Cargo 2000

And 31% are in the dark about our security initiatives

Our Agenda for Change

So today is a great opportunity to share our agenda to change the industry. Let me address the critical elements:

Safety

Security

Cargo 2000

E-freight

And the environment

Many of these are items that you asked us to address at last year’s forum in Mexico City. So let me give you a progress report.

Safety

Safety is our top priority. We are the safest mode of transportation with one accident for every 1.3 million flights. Last year there were 16 cargo accidents - 16% of the industry total. This is down from the 25% recorded in 2006 but it is still not good enough. Surprisingly, most accidents occurred in some of our safest regions. North America reported 5 accidents, Asia Pacific 4, Latin America 3 and one each in Russia/CIS and Europe. Africa and the Middle East had perfect records. This points to the need for constant vigilance – everywhere. There was some good news: 235 of our member airlines completed an IOSA audit - 16 of them cargo carriers. 136 are on the registry but cargo is behind with only one airline on the registry. Our goal is to bring all carriers on board by the end of the year. And we will promote our Integrated Airline Management System which pairs safety and quality management to improve safety performance.

Security

Security, on the other hand, is still a mess. We have the fundamentals right. Our risk management capabilities are excellent but we have not convinced our stakeholders. Politicians still want to treat air freight like baggage. It is not. And we must get better at explaining why, starting by speaking with one voice. We all know what the problems are:

1. Screening technology is not being optimised.

2. States are not acting. Few of the 190 ICAO member states are living up to their obligations to implement cargo programmes. We surveyed 32 states but only 23 have regulated agents and only 22 allow “known shippers.”

3. There is little alignment or mutual recognition of standards. Definitions, requirements and enforcement vary from country to country. The result is a patchwork of regulation that jeopardises security and drives up costs.

It’s time we cleaned up this mess! We must lead the industry with our new “Secure Freight” programme. Our approach has three components. The first is to speak with one voice. The Air Cargo Security Industry Forum was born at last year’s symposium. It brings together IATA and FIATA and 25 other industry associations so that we can influence regulators with a common message. We can see results already in the language of the 9.11 Commission Act. Second, we will develop internationally recognised security accreditation standards with a security audit, similar to ISAGO for supply chain operators. Our target is to pilot this with a shipper and a forwarder by the end of the year. Third we must create a global registry of secure supply chain operators, including “known shipper”, details to be used by regulators and the supply chain to verify customers’ security accreditation. Speaking as one, supporting recognised quality controls is our best hope of achieving a security regime that is effective and efficient.

Cargo 2000

Quality is also a concern of for our customers. Cargo 2000 was established over a decade ago to simplify processes and implement effective quality standards. We reduced 40 steps in the logistics chain to 19. Cargo 2000 also agreed common standards for customer satisfaction - basically the time from order to delivery. How has this affected the business? Not enough is the short answer. Our customers pay for speed and expect cargo to arrive on time. With the Cargo 2000 participants we achieve that only 77% of the time and it is worse for others. In school it would be a passing grade, B plus. In business, it means you lose your customers. We need to get more serious. The key is leadership to drive quality assurance within organisations with people responsible for its delivery. We need to give the standards strong teeth. IATA has had great success in safety with IOSA. Why not have a quality audit based on Cargo 2000 standards?

E-Freight

Quality is also key to another important IATA project—e-freight. This industry has been stuck with the same paper processes for 60 years. And it is costing us in both efficiency and market share. E-freight is the answer to our customers’ call for lower costs, improved reliability and more speed. We built a pioneering team that crossed the supply chain with 6 airlines, 7 freight forwarders, 6 industry associations and 11 government and customs organizations. We lobbied governments to sign the Montreal Convention. Since 2004, signatories have grown from 60 to 86. And today e-freight is a reality in six key locations - the Netherlands, UK, Hong Kong, Singapore, Canada and Sweden. This covers 20 trade routes representing 10% of available volume. Electronic messaging is the backbone of e-freight. We converted 12 paper documents that had been around for 60 years to an electronic format with a single point of data entry. Together we proved that e-freight can work. Congratulations!

But there is a quality issue here as well. While the volume of electronic messaging doubled from 45% to 88% in the pilot locations, quality is still an issue. When I spoke at this conference last year I said that 75% of electronic messages were incomplete or inaccurate. We laid the groundwork for improvement with our Message Improvement Programme. Today 21 airlines and 13 freight forwarders participate in MIP and still most of their messages are incomplete or inaccurate. One key benefit for e-freight is time. Fast track customs clearance with e-freight could save up to 24 hours per shipment. But we will only achieve that if data is consistently accurate. It is the same story as for Cargo 2000.

As an industry we need to get much more serious about quality, in this case data quality. The next step for e-freight is to create a critical mass by establishing standards for other documents and increasing freight volumes and the number of locations. The IATA Board is watching progress and it challenged us to deliver 8 new locations by year-end. We are conducting detailed assessments in 46 locations including Dubai, South Korea, Australia, Germany, Spain and Italy. Implementing e-freight in all of these locations will account for over 60% of global air freight traffic. E-freight is the future.

Environment

Environment is an issue the entire supply chain must address and quickly. Aviation is responsible for 2% of global carbon emissions. Our responsible approach to the environment will limit this to 3% even in 2050. But our carbon footprint is growing and this is not acceptable for any industry. The industry is aligned with a four-pillar strategy to address climate change

Our first target is a 25% improvement in fuel efficiency by 2020. Late last year, ICAO endorsed the strategy and the target but we are determined to do much more. So at our June AGM, I added a vision to our strategy to achieve carbon neutral growth leading to a carbon-free future. Shippers have already identified environment as an issue because their customers are concerned. Finger pointing will do no good. The entire value chain must be involved. We need to act with a common goal. We started to address this last year by conducting a study in cooperation with the University of Hong Kong.

As a result of this study we have taken a number of actions. We have defined a clear position on air cargo and the environment based on facts. And we are taking on those who misrepresent our industry. We have already challenged a large retail organization that misled the public with its food miles labelling. We will benchmark best practice for reducing CO2 emissions in the supply chain, comparing air freight with other transport modes. And most importantly we are delivering results. In the last 2 years, IATA’s efforts in shortening routes, spreading best practice and improving operations saved 25 million tonnes of CO2 emissions. Even as we aim high with a zero emissions goal we are working with governments and partners to ensure that air transport continues to set a high benchmark for environmental responsibility.

The Industry Approach

Change is critical for this industry. IATA is taking a leadership role in driving that change with a different approach. Traditionally we focused on airlines only. Today, our programmes address the entire supply chain. Everybody must be on board if we are to be successful. E-freight is a case in point. We wasted 30 years talking because everyone thought it was an airline project. We have made progress, but we have a long way to go. We need closer carrier- forwarder relationships and we need to engage shippers. How do we do this?

As a first critical step we are reaching out to their associations including the Global Shippers Council and the European Shippers Council to create stronger lines of communication - listening to the voice of the customer, raising awareness of our industry agenda and giving the customer opportunities to engage.

Conclusion

This symposium is an important event. It is a time to mark progress on issues raised last year and to set the agenda for the year ahead. As you know, we are in a tough business. We need aggressive targets that deliver critical solutions. The priorities are clear to provide safe and secure transport that is environmentally responsible and meets the expectations of customers for better quality and lower costs. If we work together - the entire value chain - with a common agenda, I am confident that we will deliver great results.